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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24746
TESSCO TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in charter)
Delaware 52-0729657
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11126 McCormick Road, Hunt Valley, Maryland 21031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (410) 229-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes |X| No |_|
The number of shares of the registrant's Common Stock, $ .01 par value per
share, outstanding as of July 17, 2000 was 4,479,878.
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TESSCO TECHNOLOGIES INCORPORATED
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
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<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets as of June 25, 2000 and March 26, 3
2000
Consolidated Statements of Income for the periods ended June 4
25, 2000 and June 27, 1999
Consolidated Statements of Cash Flows for the periods ended 5
June 25, 2000 and June 27, 1999
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk 9
PART II OTHER INFORMATION
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Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 10
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Signature 11
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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June 25, March 26,
2000 2000
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(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ - $ 818,100
Trade accounts receivable, net 31,377,300 28,177,400
Product inventory 31,629,500 31,723,800
Deferred tax asset 1,199,700 1,199,700
Prepaid expenses and other current assets 1,541,700 1,843,100
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Total current assets 65,748,200 63,762,100
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PROPERTY AND EQUIPMENT, net 17,683,400 17,160,900
GOODWILL 3,214,900 3,291,200
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Total assets $ 86,646,500 $ 84,214,200
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 25,786,000 $ 25,353,800
Accrued expenses and other current liabilities 4,852,200 3,981,300
Revolving line of credit 5,405,000 5,862,000
Current portion of long-term debt 339,000 332,900
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Total current liabilities 36,382,200 35,530,000
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DEFERRED TAX LIABILITY 806,200 806,200
LONG-TERM DEBT, net of current portion 6,682,800 6,795,800
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Total liabilities 43,871,200 43,132,000
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock - -
Common stock 47,800 47,700
Additional paid-in capital 21,382,500 21,283,600
Treasury stock, at cost (3,710,600) (3,710,600)
Retained earnings 25,055,600 23,461,500
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Total shareholders' equity 42,775,300 41,082,200
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Total liabilities and shareholders' equity $ 86,646,500 $ 84,214,200
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</TABLE>
See accompanying notes.
3
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TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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Fiscal Quarters Ended
June 25, June 27,
2000 1999
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(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 62,522,500 $ 43,527,800
Cost of goods sold 45,699,100 31,902,400
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Gross profit 16,823,400 11,625,400
Selling, general and administrative
expenses 13,770,200 9,341,200
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Income from operations 3,053,200 2,284,200
Interest expense, net 482,000 325,800
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Income before provision for income
taxes 2,571,200 1,958,400
Provision for income taxes 977,100 744,200
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Net income $ 1,594,100 $ 1,214,200
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Basic earnings per share $ 0.36 $ 0.27
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Diluted earnings per share $ 0.34 $ 0.26
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Basic weighted average shares
outstanding 4,488,600 4,449,800
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Diluted weighted average shares
outstanding 4,637,200 4,619,000
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</TABLE>
See accompanying notes.
4
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TESSCO TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Three Months Ended
June 25, June 27,
2000 1999
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(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,594,100 $ 1,214,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 822,600 641,200
Provision for bad debts 158,100 56,600
Increase in trade accounts receivable (3,358,000) (1,069,800)
Decrease in product inventory 94,300 65,300
Decrease in prepaid expenses and other current assets 301,400 427,500
Increase in trade accounts payable 432,200 2,247,900
Increase in accrued expenses and other current liabilities 870,900 741,200
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Net cash provided by operating activities 915,600 4,324,100
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,268,800) (585,300)
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Net cash used in investing activities (1,268,800) (585,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility (457,000) (3,649,000)
Payments on long-term debt (106,900) (75,700)
Proceeds from exercise of stock options 99,000 -
Decrease in other liabilities - (50,000)
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Net cash used in financing activities (464,900) (3,774,700)
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Net decrease in cash and marketable securities (818,100) (35,900)
CASH AND MARKETABLE SECURITIES, beginning of period 818,100 97,700
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CASH AND MARKETABLE SECURITIES, end of period $ - $ 61,800
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</TABLE>
See accompanying notes.
5
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TESSCO TECHNOLOGIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 25, 2000
(Unaudited)
Note 1. Description of Business and Basis of Presentation
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TESSCO Technologies Incorporated (the "Company") is a leading provider of the
services, products and solutions required to build, operate, maintain and use
wireless voice, data, messaging, tracking and Internet systems. The Company
provides marketing and sales services, knowledge and supply chain management,
product-solution delivery, and control systems utilizing extensive Internet and
information technology. Although the Company conducts business selling various
products to different customer groups, these products and customers all fall
within the telecommunications industry; therefore, the Company reports operating
results as one reportable segment.
In management's opinion, the accompanying interim financial statements of the
Company include all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation of the Company's financial
position for the interim periods presented. These statements are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
the Company's annual financial statements have been omitted from these
statements, as permitted under the applicable rules and regulations. The results
of operations presented in the accompanying interim financial statements are not
necessarily representative of operations for an entire year. The information
included in this Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the fiscal
year ended March 26, 2000.
Note 2. Earnings Per Share
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In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
SFAS No. 128 simplifies the standards for computing earnings per share
previously found in Accounting Principles Board (APB) Opinion No. 15 "Earnings
per Share" by replacing the presentation of primary earnings per share (EPS)
with basic EPS and replacing fully diluted EPS with diluted EPS. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing income available to common
shareholders by the weighted average number of common shares and the dilutive
common equivalent shares outstanding for the period.
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The dilutive effect of all options outstanding has been determined by using the
treasury stock method. The weighted average shares outstanding is calculated as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Fiscal Quarters Ended
June 25, June 27,
2000 1999
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<S> <C> <C>
Basic weighted average
common shares
outstanding 4,488,600 4,449,800
Effect of dilutive common
equivalent shares 148,600 169,200
------------------------------------------------------------------------
Diluted weighted average
shares outstanding 4,637,200 4,619,000
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</TABLE>
Options to purchase 379,550 shares of common stock at a weighted average
exercise price of $24.47 per share were outstanding as of June 25, 2000, but the
common equivalent shares were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares and, therefore, the effect of
including such shares would be antidilutive.
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This commentary should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations from the Company's
Form 10-K for the fiscal year ended March 26, 2000.
First Quarter of Fiscal 2001 Compared to First Quarter of Fiscal 2000
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Revenues increased by $19.0 million, or 43.6%, to $62.5 million for the first
quarter of fiscal 2001 compared to $43.5 million for the first quarter of fiscal
2000. Revenues from each of the Company's product categories increased. The
largest percentage increase was experienced in the sale of test and maintenance
products. Base site infrastructure, subscriber accessory and test and
maintenance products and services accounted for approximately 54%, 30% and 16%,
respectively, of revenues during the first quarter of fiscal 2001. The Company
experienced revenue growth in its system operators and reseller market
categories, partially offset by decreases in its consumer and international
market categories. Resellers, system operators, consumer services and
international users accounted for approximately 29%, 61%, 4% and 6%,
respectively, of revenues during the first quarter of fiscal 2001.
Gross profit increased by $5.2 million, or 44.7%, to $16.8 million for the first
quarter of fiscal 2001 compared to $11.6 million for the first quarter of fiscal
2000 due to increased revenues and improved gross profit margins. The gross
profit margin increased to 26.9% for the first quarter of fiscal 2001 compared
to 26.7% for the first quarter of fiscal 2000. The increase in gross profit
margin was principally attributable to the effect of product mix changes and a
move to more value-added, solution-based pricing strategies.
Total selling, general and administrative expenses increased by $4.4 million, or
47.4%, to $13.7 million for the first quarter of fiscal 2001 compared to $9.3
million for the first quarter of fiscal 2000. Total selling, general and
administrative expenses increased as a percentage of revenues to 22.0% for the
first quarter of fiscal 2001 from 21.5% for the first quarter of fiscal 2000.
The increase in these expenses is primarily attributable to a continued
investment in personnel and marketing expenses to support revenue and gross
profit growth as well as increased depreciation and amortization related to
information system enhancements.
Income from operations increased by $769,000, or 33.7%, to $3.1 million for the
first quarter of fiscal 2001 compared to $2.3 million for the first quarter of
fiscal 2000. The operating income margin decreased to 4.9% for the first quarter
of fiscal 2001 compared to 5.2% for the first quarter of fiscal 2000.
Net interest expense increased by $156,200, or 47.9%, to $482,000 for the first
quarter of fiscal 2001 compared to $325,800 for the first quarter of fiscal
2000. This increase is due to increased levels of borrowing under the Company's
revolving credit facility as well as higher interest rates.
Income before provision for income taxes increased $612,800 or 31.3%, to $2.6
million for the first quarter of fiscal 2001 compared to $2.0 million for the
first quarter of fiscal 2000. The effective tax rate for both quarters was 38%.
Net income and earnings per share (diluted) for the first quarter of fiscal 2001
increased 31.3% and 30.8%, respectively, compared to the first quarter of fiscal
2000.
Liquidity and Capital Resources
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Net cash provided by operating activities was $915,600 for the first three
months of fiscal 2001, compared $4.3 million for the first three months of
fiscal 2000. This decrease was primarily the result of an increase in trade
accounts receivable and a smaller increase in accounts payable in the first
three months of fiscal 2001 as compared to the first three months of fiscal
2000, partially offset by an increase in net income and
8
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depreciation and amortization. Net cash used in investing activities increased
to $1.3 million for the first three months of fiscal 2001 compared to $585,300
for the first three months of fiscal 2000. Net cash used by financing activities
was $464,900 for the first three months of fiscal 2001 compared to $3.8 million
for the first three months of fiscal 2000. This change is primarily the result
of decreased repayments of the Company's revolving line of credit during the
first three months of fiscal 2001 compared to the first three months of fiscal
2000.
Forward-Looking Statements
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This report contains a number of forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, all of which are based
on current expectations. These forward-looking statements may generally be
identified by the use of the words "may," "will," "expects," "anticipates,"
"estimates," and similar expressions. The Company's future results of operations
and other forward-looking statements contained in this report involve a number
of risks and uncertainties. For a variety of reasons, actual results may differ
materially from those described in any such forward-looking statement. Such
factors include but are no limited to, the following: the Company's dependence
on a relatively small number of suppliers and vendors, which could hamper the
Company's ability to maintain appropriate inventory levels and meet customer
demand; the effect that the loss of certain customers or vendors could have on
the Company's net profits; the possibility that unforeseen events could impair
the Company's ability to service its customers promptly and efficiently, if at
all; the possibility that, for unforeseen reasons, the Company may be delayed in
entering into or performing, or may fail to enter into or perform, anticipated
contracts or may otherwise be delayed in realizing or fail to realize
anticipated revenues or anticipated savings; existing competition from national
and regional distributors and the absence of significant barriers to entry which
could result in pricing and other pressures on profitability and market share;
and continuing changes in the wireless communications industry, including risks
associated with conflicting technologies, changes in technologies, inventory
obsolescence and evolving Internet business models and the resulting
competition. Consequently, the reader is cautioned to consider all
forward-looking statements in light of the risk to which they are subject.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not used derivative financial instruments. Management of the
Company believes its exposure to market risks, including exchange rate risk,
interest rate risk and commodity price risk, is not material at the present
time.
9
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material legal proceedings.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11. Statement re: computation of per share earnings
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this report.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TESSCO TECHNOLOGIES INCORPORATED
Date: August 8, 2000 By: /S/ROBERT C. SINGER
-------------------------------
Robert C. Singer
Senior Vice President and Chief Financial
Officer
(principal financial and accounting officer)
11
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EXHIBIT 11
TESSCO TECHNOLOGIES INCORPORATED
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
The information required by this Exhibit is set forth in Note 2 to the
Consolidated Financial Statements of the Company contained in Part I of this
Report.
12
